Uranium producer NexGen Energy (NXE) is up 48% over the past year, with most of the return occurring over the past few weeks. One trader sees shares taking a breather over the coming weeks.
That’s based on the December 20 $8 puts. With 58 days until expiration, 25,137 contracts traded compared to a prior open interest of 694, for a 36-fold rise in volume on the trade. The buyer of the puts paid $0.82 to make the bearish bet.
NexGen Energy recently traded right at $8, making this an at-the-money trade. Shares have a 52-week high of $8.88.
As an early-stage developer, NexGen is not yet producing a profit. NexGen burned through nearly $90 million last year, but the company has plenty of cash to sustain losses until it can develop out a property.
Action to take: Investors may want to buy shares on a pullback, as part of the longer-term trend that looks bullish for uranium. As a smaller play, NexGen could see a larger percentage gain than other uranium plays in the years ahead, but shares will also be more volatile.
For traders, the December 20 $8 puts play to a short-term pullback following NexGen’s massive move higher. Traders can likely see mid-double-digit returns in the coming weeks, and once a short-term pullback does occur, traders may want to look at playing a longer-term option play on the long side.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.